The Ministry of Electricity has placed obstacles and impossible conditions on the agreement for purchasing energy with solar energy companies according to the feed-in tariff system.

Minister of Electricity Mohamed Shaker said that the companies should obtain 85% of the cost of each project from foreign banks, and about 15% from local banks. He put an emphasis on the “item of arbitration in Egypt”. Those who agree with these conditions may sign the power-purchase agreement with the Egyptian Electricity Transmission Company (EETC).

Although the State Council has not yet reviewed the power-purchase agreement, the minister said the agreement will be ready for the companies to sign within days.

The solar energy companies were outraged and confused by this development. They consider these conditions not only impossible, but also impossible, as the minister has announced that all these procedures were stipulated in the feed-in tariff law. However, the law did not in fact determine the financing shareholder structure, but rather identified the payment method only.

The version of the agreement that was sent to investors stipulated that the arbitration will be conducted in Egypt, with the possibility of transferring it to Geneva with the consent of the two parties. Investors noted that this updated agreement determines the location of arbitration to be in Egypt only.

The companies Cairo Solar and EDF told Daily News Egypt that they have withdrawn from the feed-in tariff projects, as have Abdul Latif Jameel and Enel Green Power. Scatec Solar Company and 20 other firms also plan to withdraw from the projects due to the impossible conditions and their lack of confidence in the government’s vision.

A source from Scatec Solar said that the bureaucracy and the lack of transparency are the main reasons behind the company’s decision to halt its investment in the feed-in tariff projects, not to mention Shaker’s decision that 85% of the projects be financed by foreign banks.

He added that the company had agreed with the International Finance Corporation (IFC) and European Bank for Reconstruction and Development (EBRD) to finance a solar power plant in Benban, Aswan. The new plant was supposed to operate at a 50 MW capacity with a $100m investment, but the banks have refused to finance the project as they oppose the “arbitration in Egypt” item.

According to the source, the minister completely refused to amend this item during his meeting with the investors.

Nair Fouad, director of Infinity Solar Inc., said that his company hopes to complete the first phase of the feed-in tariff projects through a German company, which would secure the financing for the project from a foreign bank based on the current conditions, in exchange for a large share of the profits.

He added that the German company would also obtain a significant share of the profits, in the case that the company manages to convince a German bank to finance the project based on the ministry’s problematical conditions.

Mohamed Abu Gabal, head of projects development at Nile Capital and IT Ventures, said that the company’s board will decide in the next meeting whether to continue or to withdraw from the feed-in tariff projects. Despite the difficulty of the situation, this decision must be collective, he added.

Many investors are awaiting the launch of the second phase of the feed-in tariff projects, which will come within two weeks based on the Minister of Electricity’s announcement. However, all the parties expect that the ministry will reduce the capacity of the projects, as well as the feed-in tariff value. They also expect the possibility that the arbitration will be transferred outside Egypt with the consent of the two parties.

A senior official at the Ministry of Electricity said it will put forward projects with a capacity of 1,000 MW in the second phase of the feed-in tariff projects. He added that the tariff will not exceed $0.09 nor fall below $0.07, and the payment will be in Egyptian pounds.

He corroborated expectations by saying that the arbitration may be transferred outside of Egypt.

The electricity minister has not settled on the final form of the second stage of the projects. The ministry will consult Fichtner and a number of experts in the electricity sector before the announcement of the projects in a press conference.